Competition Law Enforcement: Clock is Ticking

The Order of the Competition Appellate Tribunal (Appellate Tribunal) in the Explosives Suppliers case, upholding the Competition Commission of India’s (Commission) finding of bid rigging by the suppliers, reduces the penalty payable by the explosives suppliers to 10% of the penalty that the Commission had imposed.

Besides setting the standard for the risks associated with bid rigging, which could include a single instance of boycott, and generally warning competitors against collusion, this Order of the Appellate Tribunal is important for more reasons.

First, the Order clearly puts the onus for agitating one’s rights to a fair hearing on the defendants. Parties to an inquiry before the Commission are obliged to be alert to, and agitate, any breach of the principles of natural justice before they raise such a claim in appeals before the Appellate Tribunal.

Does this mean that the principles that we hold so dear are thus discounted? Absolutely not! The Appellate Tribunal upholds the infallibility of the principles of natural justice but tempers them with the condition that defendants ought to have agitated their concerns before the Commission. In so tempering the application of these inviolable principles and in refusing to apply to them a strait-jacket formula, the Appellate Tribunal has relied upon precedent from the Supreme Court of India.

Second, the Order imposes on the Commission an obligation to not only explain, the reasons in support of the quantum of penalty but also to consider mitigating factors while imposing such penalty. The Appellate Tribunal reduced the quantum of penalty for mitigating factors including that the respondents were first time offenders, that the intention of the suppliers was only a postponement of the auction and one other circumstance very specific to the facts of the case that had to do with the maintenance of supplies to Coal India Limited (who was the informant) in spite of a significant reduction in price.

Third, the Order sets the standard for the nature of evidence that the Commission would rely on when assessing the existence of an anti-competitive horizontal agreement. In this particular case, the universal boycott of the auction by all the explosives suppliers who had logged into the system and a few letters by some of these suppliers that were “identical”, were enough for the Appellate Tribunal to uphold the finding by the Commission that this single circumstance was indeed an instance of bid rigging and a violation of law. The Appellate Tribunal, repeatedly rejects the many justifications offered by the respondents in this case as “after thoughts” or by simply refusing to accept the universal boycott as “a mere coincidence”.

Fourth, on a technical point of procedure that nevertheless impacts every person who may be involved in an investigation before the Commission, The Appellate Tribunal has rejected the argument that the Commission was required to proceed with a “further enquiry” into every case in which it disagreed with the Director General (the investigating arm of the Commission). The Appellate Tribunal makes it clear that the investigation report of the Director General is merely recommendatory in nature and that the Commission will make its order based on the responses and objections that it receives to this report from the various parties involved in the case.

This Order from the Appellate Tribunal will be closely scrutinized not only by the explosive suppliers and Coal India Limited, who are the parties directly affected, but also by every other person who may be involved in inquiries before the Director General (investigation stage), and the Commission (hearings on matters in respect of which the Director General has submitted a report).

For the Commission, this Order is a major boost (notwithstanding the reduction in penalty) because it upholds the substantive ruling of contravention and because the Order clearly sets the bar for agitation of procedural irregularities that parties to early cases before the Commission will (quite obviously) rely heavily upon during appeals. Parties are free to agitate irregularities in due process but tied to this freedom is the duty of vigilance and parties will have to agitate their concerns the first time that they spot them. It is not going to be enough to ‘save this for appeals’.

Procedural clarity in respect of the role of the Director General and the Commission is also welcome because this distinction was getting a bit fuzzy. The Director General’s report is at best, a recommendation. This report is subject to scrutiny by the Commission when the Commission takes on its adjudicatory role. And the Orders of the Commission will be closely scrutinized by the Appellate Tribunal who has - in this case - given some very valuable guidance to the Commission on the determination of penalties and reasoned orders.

It will not suffice to announce a headline grabbing fine, unless the quantum is justified by a discussion on why all the mitigating factors that ought to have been considered have been rejected by the Commission in arriving at the quantum of penalty. The Commission is understood to be working on “fining guidelines”, which will lend guidance to members of the Commission as well as the parties before it but its orders will still be subject to scrutiny by the Appellate Tribunal.

The Appellate Tribunal is hearing appeals in respect of many of the Commission’s Orders of the previous few months and this continues to promise interesting times in the development of anti-trust or competition law enforcement in India.

In the meanwhile, there is a not-so-silent clock ticking away for companies that haven’t their compliance programmes in place!